Luxembourg challenged to become world leader in governance

11.03.2011 (All day)

Luxembourg is currently a world leader in asset management and fund servicing. John Parkhouse, Partner of PricewaterhouseCoopers Luxembourg, applauds this, but wants the country to be seen as a world leader in the adoption of sound fund governance practices too. The fifth edition of PwC’s Luxembourg Fund Governance Survey, prepared jointly with the Institut Luxembourgeois des Administrateurs (ILA) shows where Luxembourg stands at the moment.

The concept of governance is still misunderstood in some quarters. Many would view it as merely an extension of the compliance and legal functions, complete with the attending administrative burden. This would be overly simplistic according to John Parkhouse, chairman of the ILA Fund Committee and partner of PwC Luxembourg. John Parkhouse believes that good governance recognises that effective supervision is not simply a checklist exercise, but a real and ongoing challenge faced by boards on a daily basis.

This fifth edition of the survey had 47 participants: 31 UCITS and 16 non-UCITS fund structures. People surveyed were board directors of funds affiliated to promoter groups, asset management firms, management companies or self-managed. Together, the funds represented in the survey hold 37% of investment fund assets under management in Luxembourg.

The survey revealed that Luxembourg fund boards meet 3 to 4 times a year. 70% of the meetings are held in Luxembourg and the majority of UCITS board directors receive as standard more than 20 different documents. Regarding composition, the clearest trend is the increase in independent directors on UCITS boards. The survey also finds that European boards are twice as likely (33%) as their Anglo-Saxon counterparts (15%) to have no independent director.

How much do I get?

Among UCITS funds there is a wide disparity in fee levels. The median remuneration rate lies in the 10,000 to 20,000 Euros band per board meeting, with a third of independent directors on UCITS boards and a quarter on non-UCITS boards earning above this range, sometimes substantially more. A lot of efforts have been made in the area of professional education and information. In 2006, only 9% of board members spent two days or more in professional education. In 2008 this figure has risen to 19% and this year it is 52%.

Regarding the primary areas of focus, there has been a change in priorities. In 2006 and 2008, the board saw its primary function as monitoring the investment performance of the fund. This year, the focus is on establishing and reviewing risk. This indicates a clear shift from a passive to an active role.

The management of conflicts of interest is without a doubt an area where there is room for improvement. Though all of the respondents said that this issue has a key role to play, 90% confirmed that the topic is not a part of the board’s standard agenda. However, the implementation of UCITS IV from 1 July 2011 will require a much greater focus on systematic identification and management of conflicts, the survey anticipates.

The survey concludes that governance developments within the Luxembourg fund industry over the last two years have been largely positive, but there is still room for improvement. Ongoing education for directors, regular board member evaluations and the maintenance of a register of conflicts are a few of them. (CW)